Ethics Violation?

Lehman’s ‘Mea Culpa’ Chip Report Was Off Old Block By SUSANNE CRAIG August 28, 2008; Page C3 On Wall Street, investment bankers long have accused each other of stealing financing ideas. But plagiarizing stock research? That’s what Lehman Brothers Holdings Inc. acknowledged it did in closely copying parts of a Sanford C. Bernstein & Co. research report. In a note sent last week to clients, Lehman apologized for issuing a report on the semiconductor industry that in places “closely resembled” two 2007 reports written by Bernstein analyst Toni Sacconaghi. “The material was not sourced to Bernstein and was used without the firm’s permission,” Lehman wrote in the client letter. Plagiarism charges occur with some frequency in academia and journalism. On Wall Street, tiffs have surfaced over who created novel types of securities and in recent years have occasionally erupted over the originality of investing notes, which are almost instantly posted online and emailed to thousands of investors. The incident comes as Wall Street firms have attempted to rebuild the credibility of their stock research to investors at a key time in the markets. In 2003, 10 large Wall Street firms including Lehman paid a total of more than $1 billion in fines to settle civil regulatory charges that they issued overly optimistic stock research in a bid to win more lucrative investment-banking business. LEHMAN’S LETTER Excerpts of an Aug. 21 letter that Lehman Brothers sent to clients: Dear Client, On March 3, 2008, we released a semiconductor industry report entitled Semiconductors-Virtualization: Investigating the Impact. … It has recently come to our attention that a section of the report, specifically a virtualization workload forecast (analysis and figures found on pages 35 to 39 of our report) … and two additional figures, figure 19 on page 23 and figure 26 found on page 30, closely resemble content produced by Bernstein research last summer in two research reports… The material was not sourced to Bernstein and was used without the firm’s permission. We sincerely apologize to Bernstein, the authors of the reports, and to our clients for this incident. … Sincerely, Lehman BrothersBernstein is well known for its research, often billed as “independent,” because unlike big Wall Street firms like Lehman Brothers it doesn’t have the conflict of housing an investment-banking operation. Lehman, for its part, has poured millions of dollars into building its research department over the years. In 2007, Lehman says it ranked first for the fifth consecutive year in the widely followed Institutional Investor magazine annual “All-America Research Team” survey for equity analysts. Lehman ranked seventh among 72 firms winning awards in The Wall Street Journal’s latest Best on the Street analyst survey. Bernstein came in 71st out of the 72 firms. The report, by a team of Lehman analysts led by Tim Luke, was issued in early March 2008 centered on so-called virtualization technology, which essentially allows one computer to do the work of several. Lehman said that some analysis and work toward the end of the report closely resembled two reports by Bernstein. These include several pages of text and graphics. The staffer responsible for lifting the data is no longer at Lehman, according to a person familiar with the matter. “Once this matter came to our attention we thoroughly investigated the situation and took the appropriate corrective actions,” a Lehman spokeswoman said. Neither Messrs. Luke nor Sacconaghi responded to calls for comment. “We greatly appreciate Lehman’s letter, which both informed clients and apologized to Bernstein, that Lehman had published research containing materials authored by Bernstein without Bernstein’s permission or attribution,” a Bernstein spokesman said. It isn’t the first time similar pilfering has been alleged. In 1994, The Wall Street Journal reported that a series of mutual-fund analyses by one large firm closely resembled the analysis of the same funds done by a rival a few months earlier. The company denied it copied its rival’s analysis and said the similarities arose from fund managers’ tendency to repeat themselves. In 2004, another Journal article focused on the case of a New York economic research firm suing a German bank for stealing nearly two dozen reports and posting them on their Web site as their own. The case was settled.